Causation snafu mars expert’s lost profits analysis

American Aerial Services v. Terex United States, 2015 U.S. Dist. LEXIS 55997 (April 29, 2015)

Causation is a critical element of damages. It also frequently derails experts because they rely on the plaintiff to create the necessary link between the plaintiff’s losses and the defendant’s conduct. On the other hand, the plaintiff may use the expert’s financial analysis to legitimize its own, untested causation narrative.

A recent Daubert case shows the risk to an expert’s lost profits analysis, and credibility, where he adopted the client’s theory without applying any professional scrutiny.

The plaintiff sued the defendants over a defective truck crane it had bought for use in its steel erection and crane rental business. It asked for lost profits and offered testimony from a damages expert, which the defendants attacked under Federal Rule of Evidence 702 and Daubert.

One of the expert’s key findings was that the plaintiff’s overall lost revenue was entirely linked to the company’s experience with the crane. When the crane worked well, the plaintiff was able to generate increased revenues, but, once the crane faltered, the plaintiff’s revenue began to decrease, the expert said in his reports to the court.

The plaintiff’s financial data indeed showed an increase and a decrease for the relevant periods, but linking the movement in revenue to the plaintiff’s changing experience with the crane was entirely the idea of the plaintiff’s owner. He called it the “luster effect” theory. The expert assumed the theory was true and crafted his lost profits analysis to accommodate the narrative.

The federal court agreed with the defendants that the expert’s analysis was compromised. Read more about the court’s ruling here.